Today’s student spotlight comes from Tommy Flaim, a junior at the University of Notre Dame where he studies Finance and Education, Schooling and Society (ESS). He is co-founder and co-president of Unleashed, Notre Dame’s student impact investing initiative, which recently hosted its first pitch competition in the Main Building on December 6th. Their future goal is to secure funds to make impact investments. Tommy hopes the pitch competition, which challenged student teams to perform due diligence and make recommendations on simulated investments, was just a first step toward making that dream a reality. Tommy and his co-founder Carly Smith have demonstrated unparalleled passion for educating the campus on impact investing. To learn more, contact Tommy at Unleashed.
“Poverty, homelessness, crime, unemployment continue to plague even the wealthiest of nations. Imagine if in addition to existing efforts, we could leverage trillions in private capital and bring the same level of focus and entrepreneurial dynamism that we see in the private sector to meet the pressing needs for better schools, more job opportunities, improved public services, safer streets?
We don’t have to imagine. It is already happening – and it is called impact investing. The idea is simple enough – to invest in efforts that not only provide a return on investment, but also target specific social needs.”
Above are excerpts from Sir Ronald Cohen and Matt Bannick’s Forbes article, Is Social Impact Investing The Next Venture Capital? In the article, they stress the importance of the government’s role in allowing impact investing to take off. “We can dramatically accelerate the growth of this important market by partnering with government to remove roadblocks.” There remain many obstacles to overcome before impact investing can be institutionalized, allowing common investors to participate in this market. Many parties, including social entrepreneurs, researchers, and politicians, are working through these issues. Most recently, colleges are finding ways to get involved.
The Global Impact Investing Network (GIIN) and J.P. Morgan released a study earlier this year showing that impact investors are worried there is too much capital being deployed in this field and not a sufficient number of quality investments. In addition to business plan competitions and grants for budding social enterprises, schools are finding other ways to take promising ideas and turn them into investable products. Harvard recently opened a Social Impact Bond Lab that is working with state governments around the country to find ways to utilize these new innovative financial tools in a way that will tackle issues ranging from homelessness and early childhood education to diabetes and malaria. Social impact bonds (SIBs) are among the most promising developments in this field, garnering the attention of not only social entrepreneurs and impact investors, but also Wall Street banks and politicians. Goldman Sachs, for example, has invested in an SIB each of the last three years. President Obama, for the first time in U.S. history, included $300 million in our 2014 federal budget to incentivize the use of these “bonds” that bring a private sector mentality to public affairs. SIBs encourage investment in cost-saving preventative services and bring experimental creativity to addressing social ills, something governments with increasingly tight budgets are struggling with.
Northwestern University has joined the cause as well. Their own Kellogg Business School has partnered with INSEAD Business School and Morgan Stanley to create “The Morgan Stanley Sustainable Investing Challenge,” a pitch competition for graduate students with the goal of developing institutional-quality investment vehicles. Its goal is to “harness the power of capital markets and student creativity to create positive impact in a world of perpetual resource scarcity and continued population growth.” With more impact investors entering the space every day, a sufficient supply of quality investments will be necessary for the success of the field as a whole.
Despite a perceived lack of investment opportunities, social entrepreneurs are claiming that they are being “starved of capital.” Responding to these complaints are colleges entering the market from the buy-side. Columbia, the University of Michigan, and the University of Utah are just a few schools that are experimenting with student-run funds dedicated to impact investing. Thus far, the University of Utah has the biggest student-run fund, measuring up at $15 million. With two full- time fund managers and their partnership with Mission Markets, a NYC-based impact investing platform, undergraduate students volunteer their time to run this for-profit fund. Differences in the way these funds are structured prove there is room for creativity. Whereas the University of Utah runs a for-profit fund that targets market-rates of return, Columbia’s 118 Capital is set up as a non-profit that provides “loans and capital raising support to social enterprises in need of early-stage, risk-tolerant capital.” Another varying factor in these different student-run funds is the level of involvement from undergraduates versus that of graduate students. Although graduate students have more real-life experience and know-how, undergraduates have more free time and less turnover. Involvement from both seems to be the optimal mix.
As more players enter the market, issues and questions that need answering are becoming evident. How to structure deals with social entrepreneurs with novel business structures; how to compensate fund managers of impact investing funds who are pursuing double- and triple-bottom-line investments; what government policies will help promote growth in this field; and how to measure social benefit of these investments are some of the major questions that still remain largely unanswered. Other universities are focusing on research to answer some of these questions, most notably, Stanford, Duke, and the University of Pennsylvania. Stanford’s Social Innovation Review has published countless magazine articles, blog posts, and related content on fields like impact investing and social entrepreneurship. Duke, a long time leader in social entrepreneurship, published their two-year research project in union with InSight at Pacific Community Ventures and ImpactAssets in a report called, Impact Investing 2.0: The Way Forward. In addition to this report, they are continuing to do research, recently looking into how to involve university endowments in impact investing. The University of Pennsylvania is also deeply involved in the space in several ways, recently publishing an article, “De-Risking Impact Investments.” The mitigation of risk for impact investments is crucial for those who hope to involve fund/endowment managers, who have fiduciary duties to provide the greatest return at the lowest risk, in a major way.
Historically, “doing well” and “doing good” existed in bifurcated worlds. But things are changing. No longer must we accept the idea that our investments and charitable activities work at cross-purposes. Pope Francis praised these innovative forms of intervention that “acknowledge the ultimate connection between profit and solidarity.” Impact investing is gaining incredible momentum. It is bringing together groups that have historically had minimal overlap. Wall Street bankers and philanthropists are forming partnerships that contradict the perception that they must exist in disparate worlds. We are realizing, increasingly so, how powerful involving the private sector is when markets are put to work in the fight against our world’s most pressing and entrenched social issues. If one thing is clear it is that impact investing is poised to take off.
My question is this: what will Notre Dame’s role be in all of this?
Tommy is answering his own question with the founding of Unleashed. In addition, Dean Roger Huang and the Mendoza College of Business jointly convened an impact investing conference along with Catholic Relief Services, “Investing for the Poor.” The conference, which took place this past June in Rome, explored the emerging paradigm of impact investing, and included business, finance, academic, humanitarian, and faith-based professionals and organizations. Finally, mark your calendars now for the October 2015 Irish Impact Conference, which will feature impact investing as the central theme, including workshops on the due diligence process, acclaimed keynote speakers, and the Zielsdorf Family Pitch Competition. Stay tuned for more details, which can be found at irishimpact.nd.edu.
Featured image from Echoing Green.